The following is the Trial Balance of ABC Services for the MONTH OF DECEMBER, 2022. Debit Credit Cash 367,000 Accounts Receivable 435,000 Prepaid Insurance 120,000 Supplies 36,000 Tools 27,000 Machineries 250,000 Accounts Payable 260,000 Unearned Revenue 150,000 Mr. Cruz, Capital 628,800 Service Income 216,000 Salaries Expense 12,000 Utilities Expense 7,800 Total 1,254,800 1,254,800 Additional information: 1. Insurance for 1 year was bought on Septermber 1 of the current year. 2. Advance payment for laundry services for 3 months was made on November 30. 3. Salaries of P12,000 are paid on the 5th and 25th of each month. 4. Machineries has an estimated useful life of 4 years with a salvage value of P10,000. Prepare the adjusting entries.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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Follow up questions:
1. Please explain further how did you come up with the formula 12,000x(6/11) in number 3.
2. According to the statement, it is only for the MONTH of December. P60,000 is the annual
Thank you!
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